There are several types of insurance that general contractors may need to purchase. Some of these are project specific, so check with the project owner to see if you are required to purchase them. You may also need to purchase additional policies to cover your business, like automobile or property insurance.
1. General liability insurance
General liability insurance protects contracting businesses from losses due to theft, accidents, vandalism, third-party injuries, and legal actions. For example, it will cover costs if a worker damages your customer’s property while working on a project. It also includes legal services for lawsuits and other claims. It is the basic business liability insurance that all businesses should have. In most states, general liability insurance is required in order to be licensed as a construction contractor. Even if it’s not required, general liability insurance is a good business investment.
2. Builder’s risk insurance
Builder’s risk insurance, or course of construction insurance, protects construction projects while they are in progress, protecting the materials installed from vandalism, theft, or other damage. Traditional property insurance covers damages to existing buildings or structures but doesn’t cover them during construction or remodeling. The policy will pay for work that must be replaced and compensate contractors for delays caused by damage. The builder’s risk policy can be purchased either by the general contractor or the project owner. They are used only on privately funded projects, since publicly funded projects are self-insured by the government. Usually, the contract with the owner will specify who is responsible for purchasing this coverage.
3. Professional liability insurance/Errors and omissions (E&O)
Professional liability insurance — also called errors and omissions (or E&O) — covers design firms and contractors who provide design services. It protects them from damages caused by a mistake in their designs. For example, if a building suffers from structural issues due to a design flaw, this policy will cover the damages or costs to repair the problem. This type of policy is only required if your firm provides design services.
4. Inland marine
Inland marine insurance, also called tools and equipment insurance, covers materials, tools, and equipment while they are in transit to and from a jobsite or being stored temporarily at a warehouse. General liability insurance covers tools and equipment when they are at your office or shop, and inland marine covers them in transit and at the jobsite. The policy pays for repairs or replacement of materials, tools, and equipment that are lost or damaged due to theft, vandalism, or other events. This type of insurance is optional but is a good investment if you own expensive tools and equipment.
5. Subcontractor default insurance
Subcontractor default insurance (SDI), also called SubGuard, protects general contractors against losses caused by subcontractor default. It helps cover the expenses incurred when a subcontractor fails to perform. For example, if a plumber is not able to complete their work, this insurance would pay the expenses to hire a new plumber and have them finish the job, fewer deductibles and lost reserve requirements. Some SDI programs require general contractors to have $200 million in subcontractor work to purchase a policy. For this reason, this coverage is not available to most small to medium general contractors. Performance bonds and project loss insurance are more affordable options for smaller contractors wanting protection from subcontractor default.
Wrap-up insurance: Combining multiple policies on a project
When something happens on a construction project, it can be difficult to tell whose insurance should pay. On most projects the general contractor, subcontractors, and sub-subcontractors each carry their own insurance. This can lead to disputes between insurance companies about who’s at fault and who should pay.
Learn more: Does GC Insurance Cover Subcontractors?
Wrap-up insurance solves these disputes by covering the entire project in one package. Contractors, subcontractors, and sub-subcontractors are all added as additional insureds to a package of policies that may include general liability, workers compensation, excess liability, and builders’ risk. All contractors on the project received credits from their individual insurance carriers so they aren’t paying for double coverage.
The two most common wrap packages are CCIP (contractor-controlled insurance program) and OCIP (owner-controlled insurance program). The only difference between these policies is who pays the premium and deductible. These packages can cover a single project or multiple projects.
The advantages of wrap policies include reduced costs, no gaps in coverage, a wider pool of subcontractors able to bid, and a simplified claims process.
Insurance protects companies from risk — and general contractors have many risks involved in their work. Some companies may try to save money by not purchasing insurance. This works, until there’s a problem, and then the company pays for it. If you are a GC operating without general contractor insurance, or wondering what insurance you need to buy, we’ve got the answer.
How much does general contractor insurance cost?
How much your general contractor’s insurance will cost depends on several factors:
- The amount of coverage you need — which will depend on how many vehicles and employees you have, and the required limits of coverage
- The amount of deductible
- The location you’re working in
- Your claims history
Contact an agent or insurance company directly to get a quote on coverage for your company. You will have to provide company information and financial documents to show how long you’ve been in business and the types of projects you work on.